{"id":2497,"date":"2022-04-18T19:31:50","date_gmt":"2022-04-18T19:31:50","guid":{"rendered":"https:\/\/mdr.foobrdigital.com\/?p=2497"},"modified":"2022-04-18T19:31:50","modified_gmt":"2022-04-18T19:31:50","slug":"statistical-arbitrage","status":"publish","type":"post","link":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/2022\/04\/18\/statistical-arbitrage\/","title":{"rendered":"Statistical Arbitrage"},"content":{"rendered":"\n<p>In finance, statistical arbitrage refers to automated trading strategies that are typical of a&nbsp;<strong>short-term<\/strong>&nbsp;and involve a&nbsp;<strong>large number of securities<\/strong>.<\/p>\n\n\n\n<p>In such strategies, the user tries to implement a trading algorithm for a set of securities on the basis of quantities such as&nbsp;<strong>historical correlations<\/strong>&nbsp;and&nbsp;<strong>general economic variables<\/strong>. These measurements can be cast as a&nbsp;<strong>classification<\/strong>&nbsp;or&nbsp;<strong>estimation problem<\/strong>. The basic assumption is that prices will move towards a&nbsp;<strong>historical average<\/strong>.<\/p>\n\n\n\n<p>We apply machine learning methods to obtain an&nbsp;<strong>index arbitrage strategy<\/strong>. In particular, we employ&nbsp;<strong>linear regression<\/strong>&nbsp;and&nbsp;<strong>support vector regression (SVR)<\/strong>&nbsp;onto the prices of an&nbsp;<strong>exchange-traded fund<\/strong>&nbsp;and a&nbsp;<strong>stream of stocks<\/strong>.<\/p>\n\n\n\n<p>By using&nbsp;<strong>principal component analysis (PCA)<\/strong>&nbsp;in reducing the dimension of&nbsp;<strong>feature space<\/strong>, we observe the benefit and note the issues in the application of SVR.<\/p>\n\n\n\n<p>To generate trading signals, we model the residuals from the previous regression as a&nbsp;<strong>mean-reverting process<\/strong>. In the case of classification, the categories might be&nbsp;<strong>sold<\/strong>,&nbsp;<strong>buy<\/strong>&nbsp;or&nbsp;<strong>do nothing<\/strong>&nbsp;for each&nbsp;<strong>security<\/strong>.<\/p>\n\n\n\n<p>Also one might try to predict the&nbsp;<strong>expected return<\/strong>&nbsp;of each security over a future time horizon.<\/p>\n\n\n\n<p>In this case, one typically needs to use the estimates of the expected return to make a&nbsp;<strong>trading decision(buy, sell, etc.<\/strong>)<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In finance, statistical arbitrage refers to automated trading strategies that are typical of a&nbsp;short-term&nbsp;and involve a&nbsp;large number of securities. In such strategies, the user tries to implement a trading algorithm for a set of securities on the basis of quantities such as&nbsp;historical correlations&nbsp;and&nbsp;general economic variables. These measurements can be cast as a&nbsp;classification&nbsp;or&nbsp;estimation problem. The basic [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[792],"tags":[],"_links":{"self":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/2497"}],"collection":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/comments?post=2497"}],"version-history":[{"count":0,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/2497\/revisions"}],"wp:attachment":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/media?parent=2497"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/categories?post=2497"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/tags?post=2497"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}